Complete and Incomplete Econometric Models

by John Geweke

Overview

Econometric models are widely used in the creation and evaluation of economic policy in the public and private sectors. But these models are useful only if they adequately account for the phenomena in question, and they can be quite misleading if they do not. In response, econometricians have developed tests and other checks for model adequacy. All of these methods, however, take as given the specification of the model to be tested. In this book, John Geweke addresses the critical earlier stage of model development, the point at which potential models are inherently incomplete.


Summarizing and extending recent advances in Bayesian econometrics, Geweke shows how simple modern simulation methods can complement the creative process of model formulation. These methods, which are accessible to economics PhD students as well as to practicing applied econometricians, streamline the processes of model development and specification checking. Complete with illustrations from a wide variety of applications, this is an important contribution to econometrics that will interest economists and PhD students alike.

Product Details

ISBN-13:	9780691140025
Publisher:	Princeton University Press
Publication date:	02/28/2010
Series:	The Econometric and Tinbergen Institutes Lectures
Pages:	176
Product dimensions:	5.60(w) x 8.60(h) x 0.80(d)

About the Author

John Geweke is Distinguished Research Professor at the University of Technology Sydney, and research professor at the University of Colorado. He is the coeditor of the Journal of Econometrics and his most recent previous book is Contemporary Bayesian Econometrics and Statistics (Wiley).

Table of Contents

Series Editors' Introduction vii

Preface ix





Chapter 1: Introduction 1

Chapter 2: The Bayesian Paradigm 7

2.1 Complete Models 10

2.2 Model Comparison and Averaging 16

2.3 Simulation 19

2.4 Model Evaluation 23





Chapter 3: Prior Predictive Analysis and Model Evaluation 34

3.1 Data and Models 35

3.2 Prior Predictive Analysis 47

3.3 Comparison with an Incomplete Model 71

3.4 Appendix: A Gaussian Copula for Evaluating Predictive Densities of

Vector Functions of Interest 84





Chapter 4: Incomplete Structural Models 86

4.1 The Essential Elements of DSGE Models 88

4.2 Strong Econometric Interpretation 95

4.3 Weak Econometric Interpretation 98

4.4 Minimal Econometric Interpretation 109

4.5 Implications for Structural Modeling 118





Chapter 5: An Incomplete Model Space 122

5.1 Context and Motivation 123

5.2 Pools of Two Models 130

5.3 Examples of Two-Model Pools 135

5.4 Pools of Multiple Models 142

5.5 Multiple-Model Pools: An Example 150

5.6 Pooling and Model Improvement 155

5.7 Consequences of an Incomplete Model Space 158

References 161

What People are Saying About This

Diebold

This book is original and powerful. It develops a Bayesian paradigm that embraces the reality of applied modeling, in which 'discoveries' of things previously unimagined are made regularly. It will be of immediate interest to all economists and statisticians who want to push Bayesian principles toward innovative practice (and who doesn't?).
— Francis X. Diebold, University of Pennsylvania

Gary Koop

This excellent book seamlessly links many important econometric methods, models, and concepts.
— Gary Koop, University of Strathclyde

From the Publisher

"This book is original and powerful. It develops a Bayesian paradigm that embraces the reality of applied modeling, in which 'discoveries' of things previously unimagined are made regularly. It will be of immediate interest to all economists and statisticians who want to push Bayesian principles toward innovative practice (and who doesn't?)."—Francis X. Diebold, University of Pennsylvania

"How do we know whether a statistical model is good enough for a particular economic research problem? To answer this question, John Geweke introduces the concept of incomplete models, showing how they can be effective tools for model building. This book is a significant contribution to econometrics—and a pleasure to read."—Richard Paap, Erasmus University Rotterdam

"This excellent book seamlessly links many important econometric methods, models, and concepts."—Gary Koop, University of Strathclyde

Richard Paap

How do we know whether a statistical model is good enough for a particular economic research problem? To answer this question, John Geweke introduces the concept of incomplete models, showing how they can be effective tools for model building. This book is a significant contribution to econometrics—and a pleasure to read.
— Richard Paap, Erasmus University Rotterdam

Editorial Reviews

"This book is original and powerful. It develops a Bayesian paradigm that embraces the reality of applied modeling, in which 'discoveries' of things previously unimagined are made regularly. It will be of immediate interest to all economists and statisticians who want to push Bayesian principles toward innovative practice (and who doesn't?)."—Francis X. Diebold, University of Pennsylvania

"How do we know whether a statistical model is good enough for a particular economic research problem? To answer this question, John Geweke introduces the concept of incomplete models, showing how they can be effective tools for model building. This book is a significant contribution to econometrics—and a pleasure to read."—Richard Paap, Erasmus University Rotterdam

From the Publisher